Bank of America Merrill Lynch Leveraged Finance Conference November 29, 2016 NYSE: RDN www.radian.biz 1
AGENDA Post Crisis U.S. Housing Market What is Private Mortgage Insurance? Strong Business Fundamentals Growth Opportunities in Both Segments Improved Capital Structure and Cash Flow 2
POST CRISIS U.S. HOUSING MARKET Improved Credit and Regulatory Environment Current U.S. macroeconomic factors support strong housing market Nationwide home price index is recovering to levels just below long-term trends Unemployment has been declining since 2010 and is at its lowest in 7 years Interest rates are near all time lows Nationwide home prices are in line with affordability metrics for borrowers More stringent regulatory environment and improved servicing standards More stringent regulatory environment with a focus on the ability of a borrower to pay and improved loan manufacturing quality Improved servicing standards with an industry focus on preventing foreclosures Credit standards improved materially post crisis and remain conservative by historical standards CoreLogic s Housing Credit Index, a measure of credit standards, indicates current credit standards are over 2x tighter than those in the early 2000s and 5x tighter than those in 2006 Full documentation is standard with very limited acceptance of alternative documentation loans More conservative appraisal regulations have strengthened appraiser independence from lenders FICO scores for borrowers utilizing Private MI have increased, with current average borrower scores at 740+ Fixed-rate mortgage has become the predominant product, reducing the risk of default from rate resets Significant reduction in amount and types of risk layering (i.e., combining multiple higher-risk attributes within the same loan) 3
POST CRISIS U.S. HOUSING MARKET Mortgage Originations Trend $4,000 $3,500 $3,000 Current 2017 estimates suggest the largest purchase origination market in 10 years, with purchase originations exceeding $1 trillion. Dollars in Billions $2,500 $2,000 $1,500 $1,908 $1,610 On average, purchase originations are 4x as likely to use MI as refinance. $1,000 $500 $0 Purchase Refinance 4
WHAT IS PRIVATE MORTGAGE INSURANCE? Loan to Value Range MI Coverage Percentage (1) (% of Loan Amount) Effective LTV after Private MI Coverage (2) Radian Borrower Paid Monthly Premium Rates (3) 95.01-97.00% 35% 63.1% 0.55% 90.01-95.00% 30% 66.5% 0.41% 85.01-90.00% 25% 67.5% 0.30% GSE charters require credit enhancement, which includes private mortgage insurance, on conforming loans with Loan-to-Value (LTV) ratios in excess of 80%. The Private MI industry provides credit protection to the GSEs, transferring first-loss credit risk from the US taxpayer. 80.01-85.00% 12% 74.8% 0.19% 1. Based on GSE standard coverage for 30 year loans. 2. Utilizes highest LTV value in range. 3. Assumes 760+ FICO. The MI industry utilizes risk-based pricing that considers, among other attributes, LTV, FICO Score, Loan Term, Loan Purpose and Occupancy. 5
WHAT IS PRIVATE MORTGAGE INSURANCE? Private Mortgage Insurance Helps Provide Access to Homeownership WITHOUT Mortgage Insurance WITH Mortgage Insurance For many families, coming up with the required down payment can be one of the biggest hurdles to homeownership. Mortgage Insurance has helped millions become homeowners by enhancing their ability to borrow in an affordable way by reducing the risk of their loans. Source: USMI 6
WHO IS RADIAN? Q3 2016 REVENUE 84% Total Net Premiums Earned and Services Revenue: Services Fee-Based 16% Mortgage Insurance Capital-Based $281 million Radian Group Inc., headquartered in Philadelphia, provides private mortgage insurance, risk management products and real estate services to financial institutions through two business segments: Mortgage Insurance: Provided through its principal mortgage insurance subsidiary Radian Guaranty Inc., protects lenders from default-related losses, facilitates the sale of low-down payment mortgages in the secondary market and enables homebuyers to purchase homes more quickly with down payments less than 20%. Mortgage and Real Estate Services: Provided through its principal services subsidiary Clayton, as well as Green River Capital, Red Bell Real Estate and ValuAmerica. Solutions include information and services that financial institutions, investors and government entities use to evaluate, acquire, securitize, service and monitor loans and asset-backed securities. Ensuring the American Dream NYSE: RDN / www.radian.biz 7
FINANCIAL HIGHLIGHTS Radian Group Inc. Consolidated ($ in millions, except per share amounts) September 30, 2016 December 31, 2015 September 30, 2015 Total Assets $6,049.8 (1) $5,642.1 $5,760.9 Loss Reserves $821.9 $976.4 $1,098.6 Unearned Premiums $681.0 $680.3 $676.9 Long-Term Debt $1,067.7 $1,219.5 $1,230.2 Stockholders' Equity $2,888.7 $2,496.9 $2,435.6 Book Value Per Share $13.47 $12.07 $11.77 Available Holding Company Liquidity $482.5 $342.9 $744.7 Statutory Capital (Radian Guaranty) $2,542.1 $2,547.4 $2,019.4 1) Prepaid ceded premiums relating to the Single Premium Quota Share Reinsurance transaction are included in Total Assets. 8
POSITIONED TO PROVIDE LONG-TERM PROFITABILITY AND STABILITY Strong Financial Position Leader in MI and Services Markets Diversified Customer Base Uniform Capital Standards (PMIERs) and Continued High Returns on Capital Improved Capital Structure and Cash Flow 9
FUNDAMENTALS Composition of MI Portfolio Then and Now Primary RIF Distribution by FICO Score 100% 26% 80% 60% 36% 57% Primary RIF Distribution by LTV 100% 7% 24% 80% 52% 60% 31% In addition to improved overall credit characteristics for today s business, layered risk, or the combination of risky attributes in one loan, declined significantly beginning in 2009. For example: Primary NIW Distribution Layered Risk 2005-08 2009+ 40% 40% FICO<680 AND Cash-out refinance 11.0% < 0.1% 31% 30% 20% 10% 8% 0% 2% 2007 Q3 2016 619 620-679 680-739 740 33% 33% 20% 12% 8% 0% 2007 Q3 2016 < 85.00% 85.01-90.00% 90.01-95.00% 95.01%+ FICO<680 AND Original LTV>95 Investment /Second Home AND FICO<=720 6.9% < 0.2% 4.4% < 0.5% In Q3 2016, New Insurance Written (NIW) consisted of 100% prime credit quality, with 93% at 680 FICO or better. 10
FUNDAMENTALS Historically Strong Underwriting Quality 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% Primary Flow EDE Rates by Month Early default experience (EDE) within the first 12 months of a mortgage loan is an indicator of poor underwriting quality. EDE has declined dramatically as underwriting quality improved beginning in 2009 significantly outperforming even pre-crisis loan performance Quality control review has expanded significantly all 12-month early defaults are reviewed and show historically low material defect rates 0.0% 6-month EDE 12-month EDE Note: EDE rates are calculated by dividing the portion of NIW in default at a specific time period from origination (e.g., 6 months) by the total NIW from the same period. 11
FUNDAMENTALS Cure Rates Continue to Increase on an Annual Basis 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Quarterly Cure Rates A cure represents a loan that was in default (two payments missed) as of the beginning of a period and is no longer in default at the end of the same period because payments were received. Year-over-year improvement in primary cure activity to 16.7% in Q3 2016 as compared to 14.6% in Q3 2015 Cure rates in 2016 have been the highest the company has experienced in the past seven years. Overall 2-3 Missed Payments 4-11 Missed Payments 12+ Missed Payments Pending Claims 12
FUNDAMENTALS First-Lien Mortgage Insurance 2016 Performance by Vintage (in millions) 9 MONTHS ENDED 9/30/2016 3 MONTHS ENDED 9/30/2016 Vintage Premiums Earned (1) Incurred Losses (1) Net Net 2005 & Prior $41.4 $30.8 $10.6 ($0.1) 2006 $31.3 $25.5 $5.8 $1.7 2007 $60.6 $51.2 $9.4 $2.0 2008 $33.4 $15.5 $17.9 $5.1 Today, even legacy vintages are contributing to earnings. 2009 $11.7 $2.1 $9.6 $2.6 2010 $9.2 $0.7 $8.5 $2.2 2011 $18.2 $0.5 $17.7 $5.4 2012 $61.8 $2.1 $59.7 $19.1 2013 $113.8 $5.0 $108.8 $34.0 2014 $119.6 $6.8 $112.8 $35.9 2015 $149.2 $8.1 $141.1 $47.8 2016 $41.2 $0.9 $40.3 $27.0 1) Represents premiums earned and incurred losses on first-lien portfolio including the impact of ceded premiums and losses related to the 2012 Quota Share Reinsurance transactions and the Single Premium Quota Share Reinsurance transaction, but excluding any reduction for ceded premiums and losses recoverable through our other reinsurance transactions, as these impacts are not material. 13
FUNDAMENTALS Primary Mortgage Insurance Cumulative Incurred Loss Ratio by Development Year CUMULATIVE INCURRED LOSS RATIO Vintage Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Sep-16 2009 6.1% 7.0% 13.7% 17.4% 19.0% 18.3% 17.6% 17.7% 2010 1.2% 3.3% 6.5% 7.7% 7.5% 7.2% 7.2% 2011 1.7% 4.4% 5.5% 5.6% 5.0% 4.8% 2012 2.0% 3.2% 3.6% 2.7% 2.8% 2013 2.5% 4.0% 3.4% 3.6% 2014 2.7% 4.1% 4.6% 2015 2.1% 4.3% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2009 2010 2011 2012 2013 2014 2015 Radian assumes a through-the-cycle loss 2% ratio of approximately 20% for profitability projections on newly originated MI business. 0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 14
FUNDAMENTALS Private Mortgage Insurer Eligibility Requirements (PMIERs) Provide Robust Risk-based Capital Framework Provides a level capital playing field for the MI industry, ensuring risk and pricing discipline Designed to ensure that MI companies maintain adequate liquidity and claims-paying resources to withstand a significant stress scenario Risk-based capital factors are applied at a loan level to total net risk in force (RIF) Total risk-based capital represents projected claims on an insurer s book of business over remaining life of existing policies in a significant stress scenario Loan-level characteristics that determine capital factors applied to Performing Loans: Original LTV Original Credit Score (FICO) Vintage: 4 buckets [Pre-2005; 2005-2008; 2009 June 2012; Post June 2012] Seasoning Factors applied to Post June 2012 loans after 2 years HARP refinance loans utilize specific capital factors based on LTV & FICO Loan-level characteristics that determine capital factors applied to Non-Performing Loans: Prior to a claim filing = 55% to 85% of RIF based on number of missed monthly payments After a claim filing = 106% of RIF 15
GROWTH OPPORTUNITIES Mortgage and Real Estate Services GROUP Clayton provides risk-based analytics, residential loan due diligence, consulting, surveillance and staffing solutions. 16
GROWTH OPPORTUNITIES Unique Business Model Radian and Clayton combination provides unparalleled breadth and depth of mortgage risk management solutions Clayton and its family of companies were pioneers in the loan review, due diligence and surveillance industries Largest mortgage originators, servicers, and investors partner with Radian and its family of companies to evaluate and assess mortgage exposure and risks Radian is uniquely positioned to closely monitor the quality and performance trends and identify risks across the mortgage market before other market participants 17
IMPROVED CAPITAL STRUCTURE & CASH FLOW $483 million Radian Group maintained $483 million of available liquidity as of September 30, 2016 During the third quarter: The company purchased $21 million face value of outstanding 2.25% Convertible Senior Notes due 2019 The company redeemed remaining $196 million aggregate principal amount outstanding of its 9.000% Senior Notes due 2017 Debt to Capital ratio decreased to 27% Primary Sources of Additional Liquidity for Holding Company: Operating Expense and Interest Expense Reimbursement Agreement, which was in place prior to the downturn, with operating subsidiaries to pay their allocated share of holding company operating expenses and interest expense Operating expenses of HoldCo for the next 12 months are expected to be between $50 - $55 million, a substantial portion of which are expected to be reimbursed by our subsidiaries Interest expense of HoldCo for the next 12 months is expected to be $62 million, a significant portion of which is expected to be reimbursed by our subsidiaries 18
IMPROVED CAPITAL STRUCTURE & CASH FLOW Trend of Radian Guaranty Statutory Capital and Risk-to-Capital Ratio ($ in millions) $3,000.0 25.0 $2,500.0 21.5:1 20.8:1 19.5:1 17.9:1 20.0 $2,000.0 14.3:1 13.7:1 15.0 $1,500.0 $1,000.0 10.0 $500.0 5.0 $- Q4 11 Q4 12 Q4 13 Q4 14 Q4 15 Q3 16 - Statutory Capital Risk-to-Capital Ratio 19
IMPROVED CAPITAL STRUCTURE & CASH FLOW Total Capitalization as of September 30, 2016 Coupon Description Carrying Value ($ 000) Principal ($ 000) % of Total Capitalization (1) 5.50% Senior Notes due 2019 $296,611 $300,000 7.5% 5.25% Senior Notes due 2020 345,003 350,000 8.7 7.00% Senior Notes due 2021 344,078 350,000 8.7 Total Senior Notes: 985,692 1,000,000 24.9 3.00% Convertible Senior Notes due 2017 20,600 22,233 0.5 2.25% Convertible Senior Notes due 2019 61,374 68,024 1.6 Total Convertible Senior Notes 81,974 90,257 2.1 Total Debt $1,067,666 $1,090,257 27.0 Stockholders Equity 2,888,706 73.0 Total Capitalization $3,956,372 100.0% Prudent balance sheet management and strong performance has led to ratings upgrades. Radian Group has no material debt maturities prior to June 2019. Radian Group is committed to returning to investment grade. Current Radian Group Ratings: S&P BB with stable outlook Upgraded from BB- to BB on September 28, 2016 Moody s Ba3 with stable outlook Upgraded from B1 to Ba3 on January 28, 2016 1) Based on carrying value of debt and stockholders equity. 20
CONSERVATIVE INVESTMENT PORTFOLIO Total investments of $4.6 billion as of September 30, 2016 Collateralized Loan Obligations, 5.1% Commercial Mortgage Backed Securities, 12.5% Corporate, 41.1% BBB, 16.3% US Government/ AAA, 39.4% Cash & Equivalents, 15.8% Asset Backed Securities, 4.3% A, 28.6% US Treasuries, 1.7% Taxable Muni, 7.9% Mortgage Backed Securities, 9.3% Emerging Market Debt, 2.3% AA, 15.7% 21
SAFE HARBOR STATEMENTS All statements in this presentation that address events, developments or results that we expect or anticipate may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Exchange Act and the U.S. Private Securities Litigation Reform Act of 1995. In most cases, forward-looking statements may be identified by words such as anticipate, may, will, could, should, would, expect, intend, plan, goal, contemplate, believe, estimate, predict, project, potential, continue, seek, strategy, future, likely or the negative or other variations on these words and other similar expressions. These statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management s current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements including: changes in general economic and political conditions, including in particular but without limitation, unemployment rates, interest rates and changes in housing and mortgage credit markets, that impact the size of the insurable market and the credit performance of our insured portfolio; changes in the way customers, investors, regulators or legislators perceive the performance and financial strength of private mortgage insurers; Radian Guaranty s ability to remain eligible under the PMIERs and other applicable requirements imposed by the Federal Housing Finance Agency and by the GSEs to insure loans purchased by the GSEs; our ability to successfully execute and implement our capital plans and to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs; our ability to successfully execute and implement our business plans and strategies, including in particular but without limitation, plans and strategies that require GSE and/or regulatory approvals; our ability to maintain an adequate level of capital in our insurance subsidiaries to satisfy existing and future state regulatory requirements; changes in the charters or business practices of, or rules or regulations imposed by or applicable to, the GSEs, including the GSEs interpretation and application of the PMIERs to Radian Guaranty; changes in the current housing finance system in the U.S., including in particular but without limitation, the role of the FHA, the GSEs and private mortgage insurers in this system; any disruption in the servicing of mortgages covered by our insurance policies, as well as poor servicer performance; a significant decrease in the Persistency Rates of our Monthly Premium Policies; competition in our mortgage insurance business, including in particular but without limitation, price competition and competition from the FHA, VA and other forms of credit enhancement; the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the financial services industry in general, and on our businesses in particular; the adoption of new laws and regulations, or changes in existing laws and regulations, or the way they are interpreted; the outcome of legal and regulatory actions, reviews, audits, inquiries and investigations that could results in adverse judgments, settlements, fines, injunctions, restitutions or other relief that could require significant expenditures or have other effects on our business; the amount and timing of potential payments or adjustments associated with federal or other tax examinations, including deficiencies assessed by the IRS resulting from its examination of our 2000 through 2007 tax years, which we are currently contesting; the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in connection with establishing loss reserves for our mortgage insurance business; volatility in our results of operations caused by changes in the fair value of our assets and liabilities, including a significant portion of our investment portfolio; changes in GAAP or SAP rules and guidance, or their interpretation; legal and other limitations on dividends and other amounts we may receive from our subsidiaries; and the possibility that we may need to impair the carrying value of goodwill established in connection with our acquisition of Clayton. For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2015, and subsequent reports and registration statements filed from time to time with the U.S. Securities and Exchange Commission. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we issued this presentation. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason. 22